Chapter 13, Problem 13.30E

To determine

Concept Introduction:

The variable factory overhead controlled variance is difference between the budgeted and actual variable factory overhead.

The fixed factory overhead volume variance is the difference between the standard fixed factory overhead at actual production and at $100\%$ of normal capacity.

The sum of variable overhead controlled variance and fixed factory overhead volume variance is the factory overhead cost variance.

To Prepare:

A factory overhead cost variance report of trim department for the month of July.

Answer to Problem 13.30E

The net controllable variance is $\$1,710$ favorable.

The volume variance is $\$6,300$ unfavorable.

The total factory overhead variance is $\$8,010$ unfavorable.

Explanation of Solution

Factory overhead cost variance report
Productive capacity for the month of ( $100\%$ normal) $30,000hours$
Actual production for the month $28,000hours$
Particulars	Budgeted (at actual production)	Actual	Variance
			Favorable	Unfavorable
Variable factory overhead cost:
Indirect factory Wages (W.N. $1$)	$\$22,400$	$\$23,250$		$\$850$
Power and light (W.N. $2$)	$\$20,160$	$\$20,000$	$\$160$
Indirect Material (W.N. $3$)	$\$10,080$	$\$11,100$		$\$1,020$
Total variable factory overhead cost	$\$52,640$	$\$54,350$
Fixed factory overhead costs:
Supervisory salaries	$\$50,000$	$\$50,000$
Depreciation on plant and equipment	$\$33,100$	$\$33,100$
Insurance and property taxes	$\$11,400$	$\$11,400$
Total fixed factory overhead costs	$\$94,500$	$\$94,500$
Total factory overhead cost	$\$147,140$	$\$148,850$
Total controllable variances			$\$160$	$\$1,870$
Net controllable variance-Unfavorable				$\$1,710$
Volume variance − Unfavorable:
Capacity not used at the standard rate for fixed factory overhead $\left(2,000\times 3.15\right)$				$\$6,300$
Total factory overhead variance − Unfavorable				$\$8,010$

Working note:

$1.$ Computation of indirect factory wages for $28,000hours$

Indirect factory wages $\$20,000$ is for $25,000\text{ hours}$. So, the indirect factory wages for $28,000\text{ hours}$ is as follows:

$\begin{array}{c}\text{Indirect factory wages}=\$20,000\times \frac{28,000}{25,000}\\ =\$22,400\end{array}$

$2.$ Computation of power and light for $28,000hours$

Power and light $\$18,000$ is for $25,000\text{ hours}$. So, the indirect factory wages for $28,000\text{ hours}$ is as follows:

$\begin{array}{c}\text{Power \& light}=\$18,000\times \frac{28,000}{25,000}\\ =\$20,160\end{array}$

$3.$ Computation of indirect materials for $28,000hours$

Indirect material $\$9,000$ is for $25,000\text{ hours}$. So, the indirect factory wages for $28,000\text{ hours}$ is as follows:

$\begin{array}{c}\text{Indirect material}=\$9,000\times \frac{28,000}{25,000}\\ =\$10,080\end{array}$